MedPAC previously discussed HOPD payments this past winter [see Washington Highlights, Jan. 13, and Dec. 16, 2011], resulting in a recommendation in the commission’s March 2012 report to reduce payments for evaluation and management (E/M) services provided in hospital outpatient departments to the same level as services provided in physician offices [see WashingtonHighlights, March 23]. This month’s discussion builds on the commission’s previous work and examines additional procedures for which hospital outpatient department payments could be reduced.

Staff considered four criteria to identify services that could have equal rates across settings: frequently performed in physicians’ offices (more than 50 percent of the time); similar unit of payment (ancillaries are less than 5 percent of total cost of service in outpatient system); infrequently provided in an emergency department (ED) (less than 10 percent); and minimal difference in patient severity across settings.

Through these criteria, staff created two groups of outpatient services for the commissioners to review: 25 ambulatory payment classifications (APCs), mostly diagnostic tests, for which payment could be equalized; and 61 APCs, mostly minor procedures and imaging, for which the payment difference between settings could be narrowed. The group for which payments could be narrowed meets three of the four stated criteria, but has greater than 5 percent packaging. MedPAC estimates the one-year aggregate impact of these changes would be an approximately $1.1 billion decrease in Medicare spending, including a decrease in beneficiary cost sharing; adding the E/M recommendation from last year would bring this total to an estimated $2.1 billion per year.

If cuts were made to all 86 APCs, Medicare revenue for all hospitals would decline 0.7 percent overall and 3.4 percent in the outpatient department. Major teaching hospitals would be estimated to see a decline of 0.7 percent in overall Medicare revenue and 3.6 percent in the outpatient department. Rural hospitals would be more significantly impacted, with MedPAC estimating a decline of 1.2 percent in overall Medicare revenue and 4.2 percent in the outpatient department. Of the 100 hospitals that would see the largest payment reductions, 60 of the top 100 would be specialty hospitals, and the group overall averages 41 beds per hospital.

Commissioners were generally supportive of these reductions. Two commissioners expressed concern about the cross-subsidization within hospitals, however, and how reducing HOPD payments might impact other services the hospital provides; the commissioners emphasized the need to further assess payment adequacy.

The AAMC made a public comment urging the commission to view this analysis from the perspective of the patient and consider the impact on different cohorts of patient, including complex patients, dual eligibles, and disabled patients, to see how they access HOPD services and how these potential reductions could affect them.

The commission also considered a draft recommendation for its mandated report on work GPCIs. The recommendation supports geographically adjusting physician work, yet due to limitations in current data, keeping the current law, which adjusts for only one quarter of the geographic variation. While the recommendation does not explicitly mention the GPCI work floors that are currently in place, Commissioner Glenn Hackbarth, J.D., did note that “current law” means the floors would expire at the end of the year.

Finally, the recommendation requests the Secretary of Health and Human Services create a new geographic adjustment based on market fees, rather than the current practice of evaluating compensations for other professionals. While the commissioners generally supported the recommendation, many debated the specifics of the proposed alternative adjustment. The commission will vote on the final recommendation at its November meeting.

The meeting transcript and presentations can be found on MedPAC’s website. MedPAC’s next public meeting will be held Nov. 1-2.